Security contractor formerly known as Blackwater is for sale

Xe Services says a troubled past hinders growth, it could also complicate a sale

By

ChristopherHinton

NEW YORK (MarketWatch) -- Xe Services LLC, the private security company that gained notoriety under its former name, Blackwater Worldwide, has buckled to years of political pressure and is putting itself up for sale, though it was unclear Tuesday who would buy it.

"Because of Xe's reputational issues, it and many of the firms that have gone to market already which modeled themselves after Xe have found it very difficult to attract the interest of the larger defense players," said Jon Kutler of the investment firm Admiralty Partners, in an interview.

"If [Xe] sells, it is more likely to go to a private investor or private-equity firm," he added. But "even the latter may be sensitive to such a purchase, if it has highly visible large investors like public pension funds."

Blackwater was the de-facto militia group hired by the U.S. State Department to provide logistics and security services once provided by the military, winning huge contracts after the invasion of Afghanistan and Iraq.

But accusations of tax fraud, improper use of military force, arms trafficking and overcharging the government for services have dogged its reputation. Xe provides tactical training for the military, as well as security and law-enforcement consulting.

Two years ago, Cerberus Capital Management turned down a chance to invest in the company when it was still called Blackwater. Though no reason was given, it was speculated that the reclusive private-equity firm shied away from the unwanted attention that would have come with such a purchase.

To sell, Xe may have to break itself up and sell its services a la carte.

Three months ago, Xe did sell its aviation division to Wood Dale, Ill.-based, AAR Corp.
AIR, +0.97%
for $200 million. The transaction occurred despite a wrongful-death lawsuit filed by families of three soldiers killed in Afghanistan, when one of the company's helicopters slammed into a mountainside in 2004. (An Army investigation of the crash blamed it on "poor navigation and decision-making," according to press reports at the time.)

No one from Xe was available for comment.

Xe announced late Monday it would put itself up for sale, according to a report from the Associated Press. The company went through a management shake-up in 2009 and tried rebranding itself, but its poor reputation was making it hard to grow its military- and government-contracting business.

"Performance doesn't matter in Washington, just politics," said Erik Prince, the owner and founder of Moyock, N.C.-based Xe, said in the AP story.

Xe Services was founded in 1997 as Blackwater and changed its name in February 2009. The company continues to operate in Afghanistan, providing military and law enforcement training and logistic services.

The company has about 800 employees; according to the research firm Hoover's.

Finding a buyer is expected to take several months.

Xe and Prince, a former Navy SEAL who attended the U.S. Naval Academy, have been in the hot seat since 2007 when several of its guards on contract in Baghdad opened fire on civilians and killed 17 people.

Though charges against the guards were later dropped, the incident outraged the Iraqi government and led to the State Department revoking the company's license to operate in the country.

Last year, Baghdad removed the immunity U.S. security contractors enjoyed from prosecution under a military accord with Washington.

But Xe continues to attract the wrong kind of attention. Last month, the New York Times reported that Gary Jackson, the former president of Blackwater, tried to bribe Iraqi officials to "silence their criticism" following the fatal Baghdad shooting.

More recently, Jackson and four other former executives were indicted on charges of conspiring to violate federal firearm laws, the AP said.

Jackson was one of the first executives to leave Xe in a broad turnover of management last year, according to the news service.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.